Chinese retail sales declined 0.6% in May from a year ago, posting a worse than expected drop, and the first decline since the reopening from COVID lockdowns. The decline was driven by the 16% decline in car sales. Autos account for some 8% of the CPI. Sales of home appliances, as well as construction and decoration materials, also contracted at a double-digit pace.
A grim read for those of us still hoping for a rebound in China consumption. The Middle East conflict, and higher energy prices, have been unhelpful while at a national level, property prices (both new and used) continue to decline month on month.
The services production index, which climbed 4.4%yoy, provided some comfort. Services have a higher correlation with GDP growth.
Tier 1 cities outperformed once again with investment in high-tech industries up 4.5%yoy. Capital expenditure on semiconductor and lithium battery makers rose 11% and 25%. Unsurprisingly AI related expenditure appears to be disproportionally focused within Tier I cities. High-tech manufacturing rose 15%yoy while the electronics industry output jumped 17%. Chips and computers contributed to about half the growth in both exports and imports and within exports, semiconductors jumped 111%yoy.
The expectation is that the stronger performance from Tier I cities will – at some point -broaden out across the Tier 2 and Tier 3 cities. This has happened in previous cycles but the high concentration of AI and chips in this cycle makes this a harder call.
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Alexander James Roberts
16th June 2026